The Square Beet

BY LAUREN ELKIES SCHRAM 2/26 4:00PM

The Department of Buildings‘ review of new building plans has slowed to a crawl because the city agency is getting buried under an avalanche of permit applications.

According to the most recent agency performance report from the Mayor’s Office of Operations, when it comes to new buildings it is taking the city’s DOB nearly twice as long to complete the first plan review, which is the period from the complete submission of the application to the date the plan examiner is able to issue a decision upon the submitted plans. That process has risen to an average of 15.7 days in the fiscal year to date compared with 8.5 in the previous FYTD, the data indicate.

In addition, it takes 16 percent longer, or a total of 13.3 days, to complete a first plan review of a building project requiring significant alterations (called Alteration Type 1 or Alt-1) versus 11.5 days year-over-year. And that number could be skewed, one real estate pro said, by projects that are considered Alt-1s, but don’t require a lot of work, like change of use.

“Since the first of the year we’ve noticed a significant change in the review time for projects and it’s created a significant problem for all our projects,” said prolific architect Gene Kaufman ofGene Kaufman Architect.

And even one day behind schedule can be costly.

“One day costs $15,000 to $20,000 in expenses and $30,000 to $60,000 in lost income, depending on project size, so $45,000 to $80,000 a day,” Mr. Kaufman said.

The DOB’s figures are just averages, with some reviews extending far beyond the two-week period.

Mr. Kaufman’s office filed building permits for seven new buildings in early December, before 2014 building code changes which took effect at the beginning of this year.

“We have had initial meetings for all [seven],” he said. “But we have not a plan review for any of the [seven].”

Mr. Kaufman attributes the slowdown to a backlog of applications following a surge in year-end filings. He said the same thing happened when the code changed in 2008.

“It’s inevitable there will be a slowdown when the code changes,” Mr. Kaufman said.

An improved economy is resulting in greater building activity, and that has also been contributing to the slow pace.

The DOB pointed to a number of factors to explain the slowdown.

“While the Department of Buildings works to minimize the period between new and major job filing submissions and the completion of an initial plan review, numerous factors can influence the average time required for examination,” said a spokesman for the DOB via email. “Increased job filings, missing documents and plan submissions that violate building code and zoning standards all significantly impact average review times. The agency encourages all applicants to ensure that their plans are in compliance with all applicable codes and zoning regulations to ensure timely approval of a job.”

Architect Scott Spector of the Spector Group, who is a columnist for Commercial Observer, said: “With that degree of added work, it’s natural for a slowdown.”

Mr. Kaufman speculated that the pace is actually not slower, but that because of the rush of applications, it’s taking longer to process the jobs.

Initial permits citywide went up 11 percent last year to 98,302 issued compared with 88,290 in 2013, according to data from the DOB. The number of initial permits issued by the DOB for new buildings alone in the city increased in 2014 to 2,047 from 1,890 in 2013, while the number of filings of construction permits rose to 3,132 from 2,549 year-over-year. And there was an increase in the number of Alt-1 initial permits issued to 3,104 in 2014 from 3,058 from 2013 as there was with the filings to 4,935 from 4,479.

DOB Commissioner Rick D. Chandler last month attributed the uptick in permit issuance to the economic climate.

“I think [the increase is] because of economic reasons,” Mr. Chandler said. “I think it has a lot to do with market forces.”

Applications that are code compliant will be green-lighted more quickly than those that are not.

Developer Martin Nussbaum, a principal at Slate Property Group, hasn’t experienced any issues with the DOB process, which he ascribes to making certain “the filing is complete before we put it in.”

The DOB’s permitting process was dealt another blow on Feb. 10 when 16 city employees, 22 property managers and owners, six expeditors (middlemen between developers/architects and the city), two contractors and one engineer were arrested in a building inspection investigation of the DOB and the New York City Department of Housing Preservation and Development. The group, which also included two DOB chiefs, was indicted for its role in widespread housing fraud and bribery schemes in Manhattan, Brooklyn and Queens.

Construction attorney Ray T. Mellon of Zetlin & De Chiara said following the indictments that while the arrests were important, they didn’t address the real issue at the agency.

“Since the construction industry is such an economic force in the city, improvements need to be implemented to increase the DOB’s staff of competent employees that can review and approve permits in a timely fashion,” Mr. Mellon said. “Until this problem is finally remedied, there will be additional opportunities for individuals to seek acceleration of their projects by offering bribes to city employees. I believe that the new DOB commissioner is aware of the fact that his agency is understaffed and needs more resources in order to expedite the processing of jobs.”

Public Advocate of New York Letitia James released a statement about the large-scale bust: “The investigation results announced… scream out for the city to address the underlying issues that foster a culture of corruption: the opaque nature of so many city services, a consistent lack of oversight and the slow pace of permits. … I am calling for more inspectors, faster permitting and a more transparent inspection process.”

A day prior to the press conference announcing the 26 indictments, Mayor Bill de Blasiopresented his preliminary budget and it allocated $4.6 million to improve service at the DOB.

That was hailed as good news by the city’s main real estate trade organization.

“The construction uptick has created new demands on the Department of Buildings and we’re encouraged by the mayor’s recent commitment to invest an additional $4.6 million at the agency,” said Steven Spinola, the president of the Real Estate Board of New York. “The administration recognizes that the Department of Buildings needs more resources and is continuing to invest in technology improvements that should substantially decrease wait times as well as create new levels of transparency for plan reviews and inspections.”

Real estate pros have said that when the NYC Development Hub was introduced by the DOB in October 2011 for electronically filing construction plans, it accelerated the construction approval process. But these days, it’s not as efficient these days, some say.

“The hub allows you to file a drawing online, but some of the inefficiencies are related to online payments and filing amendments to the original application because most jobs involve amendments to the original application,” Mr. Chandler told CO last month.

One expeditor said the main consequence of the slowdown is managing client expectations.

“We’re doing more buildings than we’ve ever done and doing more Alt-1s than we’ve ever done,” said Joe Bastone, the vice president of business development at Outsource Consultants, which handles building code and zoning consulting, permit expediting, sign-offs and violation removal services.

To preempt the complaints, Outsource builds the delayed review process into the project’s overall time frame.

Amid building boom, industry is also dealing with a rise in non-union labor

October 01, 2014 By Adam Pincus

The skyrocketing price of land has been on the lips of every developer and investment sales broker in New York City for the last few years.

But less talked about is the fact that the cost of actually constructing a building is breaking price records as well.

A few years ago, the highest-end condominium projects in the city cost about $650 per square foot to build. And back in 2005, the developers of 15 Central Park West shelled out only about $400 per foot to construct their gold-standard condo project.

But now some developers are routinely paying nearly $900 per foot to erect their under-construction, amenity-filled condo towers, and one project has broken the $1,000 per foot marker, according to Robert Barone, president of the White Plains–based construction analytics firm IVI International. He declined to identify any individual projects.

Those construction figures put increased pressure on developers to sell residential units for upwards of $2,500 per foot. And that’s just to break even.

“You would have to be damn sure of your ultimate selling price to take that kind of a bet,” said real estate developer Cary Tamarkin, who said his Manhattan developments have not come close to $1,000 per foot, and that most high-end condos cost up to $600 per foot to build.

Either way, overall hard construction costs have been steadily rising in New York City, where total spending for residential and commercial construction is expected to hit a record $18 billion this year, figures from the New York Building Congress show. (That’s not including another $10 billion in government construction spending.)

New York City “will have about $30 billion in construction this year,” said Midtown-based construction attorney Barry LePatner. “That is the largest construction value that we have had since 2007. We are really back in terms of new construction.”

That activity is pushing up construction prices.

Many of the high-priced line items for buildings have risen by more than 20 percent over the past several years, according to a comparison of several New York City projects by IVI International.

For example, the price for concrete work, which includes the cost of labor, is projected to hit $92 per foot this year, up from $75 in 2011. Other cost jumps are even more dramatic, such as electrical, which rose by 45 percent, to $45 per foot, according to a comparison of two condo projects IVI analyzed, one from 2011, and one from 2014.

Yet the biggest thorn in the side of builders when it comes to hard costs is the sharp rise in insurance premiums, which have roughly doubled over the past five years to as much as 10 percent or more of the average project’s budget. Labor costs also jumped, but that rise has been mitigated by the surprising growth of non-union contractors in the city.

And a host of materials like steel remain below peak pricing, in part because of the decline in demand from China, where the economy, and therefore development, is slowing down.

Below is a rundown of some of the construction costs in today’s booming building business.

Insurance issues

Insurance is one of the largest line items in the construction field. And in New York, it’s even pricier than it is elsewhere because of a state law that creates strict liability for property owners and contractors, said Louis Coletti, CEO of the Building Trades Employers’ Association, which represents 1,700 unionized contractors throughout the city.

As a result of that legislation — which dates back to 1885 and is commonly known as the scaffold law — when a worker is injured on the job, the owner and contractor are fully liable, regardless of whether the worker is at fault.

Despite the fact that the law has been around for over a century, it has recently led to skyrocketing claims and insurers fleeing the state, Coletti said.

Insiders offered differing reasons for why insurance rates have only shot up recently. Some say juries have been granting huge awards during the current building boom for on-the-job injuries, while others say underwriters have been pulling out of the market, reducing competition.

Coletti cited the city’s School Construction Authority’s predicament as a prime example of the impact of increased insurance costs. The SCA was paying about $95 million per year for construction insurance from 2011 to 2013. But that figure jumped to $234 million for 2014 alone. A spokesperson for the agency confirmed the figures, but declined further comment.

“On the private side, increases are similar,” said Coletti, noting that construction insurance premiums have risen from about 4 percent of the hard costs to 10 percent or more, in some cases.

For example, at Tishman Speyer’s planned $3.2 billion tower at 509 West 34th Street in the Hudson Yards area, insurance costs are $155 million, or about 9 percent of the $1.8 billion in hard costs, according to the company’s filing for a city tax exemption.

Meanwhile, at one recent outer-borough residential apartment project with a budget of roughly $400 million, the insurance costs are about $28 million, or 7 percent of the total, according to the developer, who did not want to be named.

Labor losses

Labor costs have also been on the rise recently.

“The reason building costs more is contractors are finally at the saturation point, where they are so busy that they can charge [developers] more,” LePatner said.

Yet as noted above, in a sea change for the industry, non-union contractors have made inroads — even among established developers.

In addition, major construction firms that historically worked exclusively with unions are beginning to branch out because they’re seeing competition from a growing bench of non-union contractors such as Flintlock Construction Services and Triton Construction.

That newfound competition for stalwart construction unions has helped keep costs down for developers.

“The non-union market has made significant inroads in new construction in 10- to 30- [story buildings], primarily in residential and hotel, and in interior renovation. That has been a problem for us,” said Coletti.

He said unions have seen a net loss of work despite the overall growth in the industry. (Residential construction spending alone has jumped 50 percent this year compared to 2013.)

Yet developers see risks with the smaller, non-union companies popping up to take advantage of the building boom, said Craig Nassi, principal with the Manhattan-based BCN Development.

“There is some risk with the small guys because they can just put their hands up and walk away,” if they run into problems or get a more lucrative job, Nassi said. But non-union firms are competing for ever-larger projects, said Gary Rosenberg, a partner with the real estate law firm Rosenberg & Estis. He pointed to the 37-story Hilton Garden Inn at 136 West 42nd Street that opened last month and which was built by Flintlock.

“They really established that non-union can build substantial buildings,” Rosenberg said.

Coletti said non-union shops are still able to underbid union shops by 15 to 25 percent. Some of that discount stems from paying workers lower wages. But Rosenberg said the main savings comes from not having to adhere to “archaic or onerous requirements” such as stationing a mechanic next to the construction elevator, or hoist, at all times.

In addition, because they are saving developers money, non-union labor costs can also make it easier to secure a loan, said David Pfeffer, a partner and chair of the construction practice group at the Midtown-based law firm Tarter Krinsky & Drogin.

In a response to the decline in business, construction unions have inked several agreements to cut costs for developers.

For example, in August a group of unions backed a plan to cut wages for junior workers by 40 percent on affordable housing projects in select neighborhoods.

In addition, not all boroughs are created equally.

Manhattan is, not surprisingly, the most expensive borough in which to build, with average hard construction costs for buildings over 10 stories logging in between $400 and $600 per square foot, according to IVI International’s Barone. By comparison, construction costs in Brooklyn and Queens are about half that, because finishes and labor are typically less expensive.

Materials matters

New York, of course, doesn’t operate in a vacuum. It’s part of the global economy. So the economic tumult in China, and the development slowdown that’s gone along with it, has had an impact on construction costs here.

At the moment, the drop in demand from developers in China is good news for New York developers when it comes to pricing on some key materials. For example, U.S. structural steel prices are down 7 percent from a 2008 high, an index from the trade publication BNi Building News shows. On the commodities exchanges, some steel products are down more sharply, from a high of more than 56 cents per pound in 2008 to just over 33 cents last month.

Aluminum, too, is down from the 2008 peak of nearly $1.40 per pound to just over 90 cents last month, data from the information and data company InvestmentMine shows.

Other costs are near historic highs. The price of gypsum board, or Sheetrock, has surged 50 percent in the last year after remaining level since 2008, BNi reported.

Typically the most expensive line items are concrete superstructure, windows, electric systems, drywall, carpentry and plumbing.

Prices for cement and concrete, which surged about 40 percent over the past decade, however, are nearly flat over the last year. Still, concrete remains a huge line item for developers at about 10 percent to 15 percent of a construction budget for a concrete shell building.

At that aforementioned residential building, where hard costs reached about $400 million, nearly $55 million of that, or roughly 13 percent, is going to pay for concrete alone.

Yet, the rising or falling prices of materials have not individually had a major effect on development costs, LePatner said.

“The cost of the product, however marked up, is only a small part of what the bids are,” he said.

What’s ahead

Developers and contractors know cyclical spikes in demand for construction don’t come without spikes in costs, said Plaza Construction CEO Richard Wood.

“There has been a tremendous escalation of demand,” which is driving the higher costs, Wood said.

At the same time, the strong demand is helping to rebuild New York’s construction industry, which thinned out after the collapse of Lehman Brothers in 2008.

In addition, the astronomical price of land is partly responsible for higher construction costs, as developers need to distinguish their projects and recoup their investments, Barone said.

By Lindsey Kaufman

Facebook, like many tech companies, uses the open-space office model. (Ryan Anson/AFP/Getty Images)

A year ago, my boss announced that our large New York ad agency would be moving to an open office. After nine years as a senior writer, I was forced to trade in my private office for a seat at a long, shared table. It felt like my boss had ripped off my clothes and left me standing in my skivvies.

Our new, modern Tribeca office was beautifully airy, and yet remarkably oppressive. Nothing was private. On the first day, I took my seat at the table assigned to our creative department, next to a nice woman who I suspect was an air horn in a former life.  All day, there was constant shuffling, yelling, and laughing, along with loud music piped through a PA system.  As an excessive water drinker, I feared my co-workers were tallying my frequent bathroom trips.  At day’s end, I bid adieu to the 12 pairs of eyes I felt judging my 5:04 p.m. departure time. I beelined to the Beats store to purchase their best noise-cancelling headphones in an unmistakably visible neon blue.

Despite its obvious problems, the open-office model has continued to encroach on workers across the country. Now, about 70 percent of U.S. offices have no or low partitions, according to the International Facility Management Association. Silicon Valley has been the leader in bringing down the dividers. Google, Yahoo, eBay, Goldman Sachs and American Express are all adherents.  Facebook CEO Mark Zuckerberg enlisted famed architect Frank Gehry to design the largest open floor plan in the world, housing nearly 3,000 engineers. And as a businessman, Michael Bloomberg was an early adopter of the open-space trend, saying it promoted transparency and fairness. He famously carried the model into city hall when he became mayor of New York,  making “the Bullpen” a symbol of open communication and accessibility to the city’s chief.

These new floor plans are ideal for maximizing a company’s space while minimizing costs. Bosses love the ability to keep a closer eye on their employees, ensuring clandestine porn-watching, constant social media-browsing and unlimited personal cellphone use isn’t occupying billing hours. But employers are getting a false sense of improved productivity. A 2013 study found that many workers in open offices are frustrated by distractions that lead to poorer work performance. Nearly half of the surveyed workers in open offices said the lack of sound privacy was a significant problem for them and more than 30 percent complained about the lack of visual privacy. Meanwhile, “ease of interaction” with colleagues — the problem that open offices profess to fix — was cited as a problem by fewer than 10 percent of workers in any type of office setting. In fact, those with private offices were least likely to identify their ability to communicate with colleagues as an issue. In a previous study, researchers concluded that “the loss of productivity due to noise distraction … was doubled in open-plan offices compared to private offices.”

The New Yorker, in a review of research on this nouveau workplace design, determined that the benefits in building camaraderie simply mask the negative effects on work performance. While employees feel like they’re part of a laid-back, innovative enterprise, the environment ultimately damages workers’ attention spans, productivity, creative thinking, and satisfaction.  Furthermore, a sense of privacy boosts job performance, while the opposite can cause feelings of helplessness. In addition to the distractions, my colleagues and I have been more vulnerable to illness. Last flu season took down a succession of my co-workers like dominoes.

As the new space intended, I’ve formed interesting, unexpected bonds with my cohorts. But my personal performance at work has hit an all-time low. Each day, my associates and I are seated at a table staring at each other, having an ongoing 12-person conversation from 9 a.m. to 5 p.m.  It’s like being in middle school with a bunch of adults. Those who have worked in private offices for decades have proven to be the most vociferous and rowdy. They haven’t had to consider how their loud habits affect others, so they shout ideas at each other across the table and rehash jokes of yore. As a result, I can only work effectively during times when no one else is around, or if I isolate myself in one of the small, constantly sought-after, glass-windowed meeting rooms around the perimeter.

If employers want to make the open-office model work, they have to take measures to improve work efficiency. For one, they should create more private areas — ones without fishbowl windows.  Also, they should implement rules on when interaction should be limited. For instance, when a colleague has on headphones, it’s a sign that you should come back another time or just send an e-mail.  And please, let’s eliminate the music that blankets our workspaces.  Metallica at 3 p.m. isn’t always compatible with meeting a 4 p.m. deadline.

By KEIKO MORRIS

The powerful effect of the city’s improving office market is washing over Third Avenue, a corridor that only a few years ago had been largely viewed as a Midtown laggard.

The area’s availability rate through September, which includes vacancies and space that will become available within 12 months, has dropped to 10.7% from 13.4% at the end of 2013, according to CBRE research.

The overall availability rate for Midtown was 11.1%.

And rents along Third Avenue also have been on the rise, increasing from $57.45 to $59.90 a square foot, during the same period.

In the Third Avenue corridor, “Other than a few challenging buildings, I don’t think there are any more rents starting with four,” said Giacomo Barbieri, head of real estate acquisitions in the Americas for TIAA-CREF, which owns buildings in the area. “The time of $40 rents has gone.”

Third Avenue properties are still largely viewed as the less expensive Midtown alternative. They are attracting law firms, insurance companies and tenants such as private-equity firms that may also be shopping for space in typically higher-rent areas such as Sixth, Madison and Park avenues, they said.

Herald Square Properties LLC, which manages the famous Lipstick Building at 885 Third Ave., has been repositioning the building over the last four years. It has been constructing and leasing high-end office spaces in the 3,500- to 5,500-square-foot-range ready for tenants to occupy. But now the firm said it is getting demand for a full 19,000-square-foot floor.

“Once you see larger tenants back in the market that’s a direct reflection of the strength in that market,” said Gerard Nocera, founding partner at Herald Square Properties.

At 780 Third Ave., a boutique office building, the vacancy rate is about 7%—a marked difference from where it was about 15 months ago at 14%, said Paul Amrich, vice chairman at CBRE Group Inc. who handles leasing for the building.

Rents have risen about 20% in the last two years, said TIAA-CREF, the building’s owner. Prices on the top floors now reach about $90 a square foot, according to a person familiar with leasing at the tower.

A broadening tenant mix also has helped Third Avenue. “Law firms, the accounting and advertising tenant base still exist but has been much more diversified, with more private financial firms such as hedge funds, private-equity and wealth-management firms, along with some creative and technology firms,” Mr. Amrich said.

‘Once you see larger tenants back in the market that’s a direct reflection of [its] strength...’

Landlords also have been investing with an eye on catching higher rents. At 685 Third Ave., TIAA-CREF gave the building a multimillion-dollar makeover after the company purchased it from Pfizer Inc.in 2010 for about $190 million. In the last two years, the company said it had been able to lease a majority of the building with tenants such as Navigant Consulting Inc., which will take about 73,000 square feet.

RFR Realty LLC invested $10 million to revamp and reposition 757 Third Ave., after KPMG LLP vacated about 180,000 square feet in 2012. Today, the building is now about 99% leased, said Steve P. Morrows, executive vice president of RFR Realty LLC. Earlier this year, accounting and advisory firm Grant Thornton LLP signed a 130,357-square-foot lease at the building, which is several blocks north of the company’s current Third Avenue home.

The company looked at more than a dozen properties on Sixth Avenue, Park Avenue and Third Avenue before making its decision, said Frank Kurre, Grant Thornton’s Metro New York and New England managing partner.

In addition to options to take more space as it grows, another attraction that drew the company to the building was a space that allowed the firm to design modern offices with an outdoor patio overlooking the East River, Mr. Kurre said.

Despite the rise in rents and drop in vacancy on Third Avenue, many brokers noted that bargains can still be had. Six lease deals for more than 37,000 square feet signed since December included an average of 12 months of free rent and about $70 a square foot foot for improvements to the tenant space paid by the landlord, said Richard Persichetti, vice president at Cassidy Turley. Typically, Midtown tenants receive incentives more along the lines of six months free rent and $50 to $60 a square foot for tenant space improvements.

BY RICHARD PERSICHETTI 9/16 1:43PM

The Midtown availability rate dropped below 10 percent for the first time since June 2008, and is the lowest it has been in 75 months. Since the end of last year, the availability rate is down 110 basis points, and things really started to heat up during the summer, as it dropped a combined 70 basis points in July and August. Despite starting 2013 with over 850,000 square feet of negative absorption in January, Midtown has recovered nicely with 3.5 million square feet of positive absorption since then. So far this year, 34 leases greater than 100,000 square feet were signed, and half of them were completed in Midtown. Of the 17 large leases inked, eight were tenant relocations and nine were renewals, while five of the renewals included expansion space.

Since the start of the year, the Penn Plaza/Hudson Yards submarket has had the largest decline in availability out of the nine Midtown submarkets. At 8.9 percent, the availability rate is 370 basis points lower than the start of the year, which can mostly be attributed to the increase in demand for large blocks of space in the area. This submarket actually accounted for half of the large-tenant relocations for Midtown this year: New York & Company’s 178,000-square-foot lease at 330 West 34th Street, R/GA’s 173,000-square-foot lease at 450 West 33rd Street, the 131,117-square-foot Macy’s lease at 112 West 34th Street and a 133,947-square-foot sublease by Publicis at 1 Penn Plaza.

Top-grossing buildings seeing modest gains while square foot prices go through the roof

August 20, 2014 02:00PM  By Adam Pincus

  From left: Ric Clark, 245 Park Avenue (Credit: CoStar), 1251 Sixth Avenue, Empire State Building and Anthony Malkin

The sales pricing per square foot for Manhattan office buildings has been surging over the past several years. A look at revenue growth for class A office towers, however, reveals a far different picture.

The numbers tell the tale. Commercial firms such as Cushman & Wakefield report that in Manhattan’s top buildings, known as class A, the average sale price has risen from $783 per square foot in 2012 to $1,310 per foot through the second quarter of 2014. But 20 top-grossing office properties have generated more modest returns.

Indeed, 13 of the top 20 properties — which were ranked by gross revenue, using income and expense data compiled by analytics firm Genesis Computer Consultants — saw revenue increases of less than 10 percent in 2013 compared with 2012. That’s far less than the 35 percent spike in sales pricing between 2012 and 2103, and the 24 percent rise from 2013 to midway through 2014.

The top grossing property, the Empire State Building, is owned by the Empire State Realty Trust, led by CEO Anthony Malkin. It saw its revenue grow by just 8.4 percent to $188 million last year. The second highest was Mitsui Fudosan America’s 1251 Sixth Avenue, which recorded an increase of 3.4 percent, to $179 million.

Rounding out the top five were 245 Park Avenue with revenue of $151 million, which is owned by Brookfield Property Partners where Ric Clark is CEO; Google’s 111 Eighth Avenue, with $143 million; and Stahl Real Estate’s 277 Park Avenue, with $136 million, the Genesis data show.

Click to enlarge

Granted, the data does not provide an exhaustive survey of the city’s biggest properties. Instead, it offers a snapshot. The Real Deal‘s ranking is based on information provided by landlords who filed an appeal of their property taxes, a process that requires the filing of income and expense records for assets where they plan an appeal. Typically, landlords don’t file income and expense documents for each property every year, but tend to file two or three years out of four, based on an anecdotal review of top buildings by TRD. Genesis reviewed over 20,000 records from 2013 which it obtained by Freedom of Information Law requests, to update their database.

For example, several large properties are not represented on this list (but have appeared in the past several years) such as Tishman Speyer’s Rockefeller Center towers, Boston Properties’ General Motors Building or the Rockefeller Group’s 1271 Sixth Avenue, each of which would be in the top 20 had the landlords filed appeals.

Some of the buildings on the list did see large increases, often timed with new or renewal leases. The largest in both dollar and percent was at 450 Lexington Avenue, where revenue grew by $25 million, or 47 percent from the prior year. While the current owner RXR Realty did not immediately comment, in 2012 the prior owner Istithmar World, settled a $63 million rent dispute with the building’s largest tenant, the law firm Davis, Polk & Wardwell.

The second-largest dollar jump was at Boston Properties’ 601 Lexington Avenue, where Citibank renewed its lease in 2012 with nearly 500,000 square feet.

Another large increase was at Silverstein Properties’ 7 World Trade Center, which generated a 23 percent increase in revenue in 2013. That growth is a reflection of two large new leases that began part way through 2012. Law firm WilmerHale took 210,000 square feet at the building and investment data firm MSCI grabbed 125,000 square feet

City’s real estate industry dismisses universal system for assessing size of office buildings

July 09, 2014 08:30AM  By Hiten Samtani

  From left: Kenneth Creighton, Peter Boritz and Marisa Manley

In commercial real estate, size does matter. But a global effort to more clearly define office building size is being seen by New York real estate players as a non-starter.

The International Property Measurement Standards Coalition, a nonprofit group of 45 national and international real estate organizations, is looking to implement a single measurement system for the global office market. The hope is that a common set of standards will function as a sort of lingua franca across different office markets — which often have drastically different measurement methods — and allow investors, landlords and tenants to more accurately compare spaces and buildings.

The coalition first published a draft set of standards in January. It will put out a second draft next week, with a final version slated for release in November.

“The key point is that with all of these differences in local markets, we’re giving people the option to have comparability,” said Kenneth Creighton, the president of the coalition, which was formed during a meeting at the World Bank last year.

Those backing the standards tout the potential for increased transparency. “The many different ways of measuring space in markets may result in the distortion of true values,” John Saunders, head of Asian real estate at asset management giant BlackRock, said in a statement on the coalition’s website. Executives from international offices of brokerages such as JLL and CBRE also expressed support for the standards, as did Steve Williams, an executive managing director at New York-based Real Capital Analytics. The government of Dubai has also officially embraced the coalition’s standards, and in October the emirate announced that it would officially adopt them.

In New York, however, the reception to the initiative has been far frostier. Those doing the measuring for some of the city’s biggest landlords dismissed the need for new standards. The idea that such standards would increase the transparency in the New York market “has no basis,” said Peter Boritz, CEO of Real Data Management.

Nationally, most buildings are measured according to guidelines set by the Building Owners and Managers Association (BOMA), which is a member of the IPMS coalition and ostensibly has influence over the standards the coalition will release. In New York, however, most buildings are measured according to REBNY guidelines, which allow for much more aggressive measurements that result in larger numbers for rentable space, as TRD reported.

The Durst Organization’s One World Trade Center, for example, was initially pegged at 2.6 million square feet, but later shot up to 3 million square feet following a remeasurement based on REBNY guidelines. Tishman Speyer’s MetLife Building at 200 Park Avenue is now put at 3.1 million square feet, a 275,000-square-foot increase from a decade ago. The growth in rentable area resulted in a $24.3 million increase in annual rental income, according to data from tenant advisory firm Commercial Real Estate Representation.

Representatives for REBNY didn’t respond to requests for comment.

If the coalition’s standards were applied in New York, they would likely result in a drastic reduction of buildings’ rentable areas and thus reduce the value of the assets, according to Boritz. “It could change the investment sales markets,” he said. “Certainly, landlords could increase rents substantially to offset this, but that would create an entirely new set of issues.”

Creighton said that such statements illustrated a lack of understanding of the coalition’s intentions. “We’re not talking about value, we’re talking about measurement,” he said. “The value is set by the market.” Having global standards, he said, would simply make it easier for tenants to compare spaces in a more consistent manner.

But some of the city’s tenant representatives said that the initiative was a distraction and could further complicate landlord-tenant discussions. “This is absolutely not good for tenants,” said Marisa Manley, the president of Commercial Real Estate Representation. “It creates a distraction and a potential source of friction,” she added. “It’s kind of like hamsters running on a wheel — there’s a certain amount of energy being expended here.”

Instead of advocating for new standards, Manley suggested that tenant brokers should focus on building better relationships with landlords, so that they can get meaningful concessions such as tenant improvements and extended HVAC hours.

Another issue with universal standards, said Keith Keppler of tenant representation firm Cresa New York, is that space usage can vary drastically from building to building. “Measurement is irrelevant,” Keppler said. “You can put 100 people into 15,000 square feet in one building. In another it could take 20,000 [square feet].”

New York landlords are highly unlikely to embrace the initiative, said David Hoffman, a veteran leasing broker at Cassidy Turley. “If you were a major institutional investor that paid a premium to buy a trophy asset, and you bought it based on a certain price per square foot and that’s how you underwrote it, you’d have a tough time going to your boss with a smaller square footage,” he said.

Hoffman finds it interesting that the coalition was taking the time to study global measurement standards and create some uniformity, but said he didn’t see the benefit to tenants. Though tenants might be ignorant of New York’s high loss factor when they start their space quest, “they’re brought up the learning curve” by their brokers, Hoffman said.

Boritz questioned the coalition’s motivations. “The forces driving this initiative are primarily large corporate tenants that don’t have any real authority and are not any different than a special interest lobbying group,” he said.

While it is a fact of life that your rent is going to escalate every year, getting a horrendous escalation is not. There is a range of formulas that can be used in calculating your escalation and the difference between them can be substantial. Some of the most common escalations from best to worst are;

Direct Operating Expense Increase

This escalation formula apportions to you the increase in the buildings operating expenses over the prior year on a pro-rata basis. This usually comes out to $0.40-$0.50 per square foot.

Porters Wages

This escalation is directly tied to the increased cost of labor in the building and runs between $0.50-$0.60/PSF. The basic feature is preferred over the “with fringes” add on which includes the increased costs of the porters benefits which can be another $0.20-$0.40 per square foot. 

Fixed Percentage

This escalation is most commonly found and dictates a fixed percentage increase based on your base rent (e.g. 3% annual increase). This escalation can usually be negotiated down to 0.5-2.5% lower

CPI

New Details: One Vanderbilt Vies for Title of Midtown’s Tallest

BY: NIKOLAI FEDAK ON JUNE 17TH 2014 AT 6:00 AM

One Vanderbilt rendering, image by Kohn Pedersen Fox via Crain's New York

While the Midtown East re-zoning awaits additional tweaking and ultimate passage, plans are already proceeding for SL Green’s new tower at One Vanderbilt, which will be built under a special permit. Kohn Pedersen Fox is designing the 67-story building, and the project’s draft environmental impact statement contains tentative new specifics regarding its total size.

Per illustrations, One Vanderbilt’s rooftop will measure 1,350 feet, while its ultimate pinnacle looks to stand approximately 1,450′ above 42nd Street; the latter number would place the building as the second tallest structure in New York City, behind One World Trade Center. Pending adjustments, an additional foot would put the skyscraper ahead of Chicago’s Willis Tower, making it the second-tallest building in the Western Hemisphere.

One Vanderbilt — image via the draft EIS

The structure’s roof height of 1,350′ will be slightly less significant, ranking below three of the 57th Street supertalls, as well as One and Two World Trade Center. Nevertheless, the building will become a neighborhood landmark, looming over the much-bemoaned MetLife tower. Unlike its monolithic neighbor, One Vanderbilt’s upper floors will be characterized by a series of setbacks, and the parapet recalls pre-war Manhattan, when the city was dominated by spires.

On lower levels, the tower’s plan includes both restaurants and retail space; SL Green will also dramatically improve conditions on Vanderbilt Avenue, which will soon become a pedestrian gateway into the revitalized Midtown East. KPF’s latest icon will also have direct subway access.

One Vanderbilt — image via the draft EIS

In terms of specifics, One Vanderbilt will have 1.079 million square feet of office space, 246,000 square feet reserved for trading floors, 53,000 square feet of retail, 27,000 square feet for restaurants, and 55,000 square feet dedicated to rooftop amenities, including an observation deck. The development’s total scope includes another 343,500 square feet of unusable space, for a total volume of 1.8 million square feet, and an FAR of 30.

One Vanderbilt’s base, image via KPF/Crain’s

The potential deck at One Vanderbilt would offer a new perspective on the skyline to the general public, given the site’s distance from both the Top of the Rock and the Empire State Building’s 102nd floor. Including such a feature will further enhance the tower’s potentially iconic status.

As Midtown’s built environment finally catches up with 21st-century demands, One Vanderbilt will likely be joined by other ‘supertall’ buildings. Demand for new development in the surrounding neighborhood is extreme, and given the prices people are willing to pay for premium office and residential space, future structures will likely push even taller, especially if the re-zoning allows for significant residential density.

De Blasio’s push for more affordable housing must come with a similar thrust to reduce constraints on market-rate development, which is the housing most New Yorkers inhabit. In its current state, ‘affordable housing’ is a misnomer, and securing such a unit is like winning the lottery; 50,000 New Yorkers applied for 124 apartments at one such development in Harlem.

Adding the potential for significant residential development to the Midtown East re-zoning would create new living options for the neighborhood’s office workers, while also transforming the area from a relatively sterile business district into a thriving hub where people can both live and work. Plans for One Vanderbilt are proceeding without thought for this potential, though the KPF-designed building will still enhance the pedestrian sphere and the skyline, maximizing its built envelope.

One Vanderbilt — image via the draft EIS

No formal completion date has been announced — and the site’s existing structures must still be demolished – but given the recent news that SL Green is in talks with TD Bank as a potential anchor tenant, a 2020 completion date would appear feasible.

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Upon representing two tenants on renewals in the last two weeks, I was struck by the onerous sublet clause that went unnoticed when they previously represented themselves in negotiating their own lease. The ability to sublease your space is the fundamental right of any commercial space user. Unexpected changes in your business and space requirements often necessitate different arrangements. What most tenants don’t realize is that your lease can make this practically impossible. Two common examples (among many) which seem innocuous can be the landlord’s consent period and the building agent requirement.

Tenants with a lease that allows the landlord 90-days to approve their sub-tenant have in effect killed any possibility of sub-letting their space. What tenant is going to wait and waste three full months only to find out the landlord doesn’t approve of their tenancy!   

Additionally, leases will often mandate using the building’s agent to market your space for sublease. In a case where the landlord has a competing space in the building the conflict is glaring. More than that, the landlord is already collecting rent from you and has little incentive to find a sub-tenant for you.

By ILONA BILLINGTON

May 27, 2014 7:04 p.m. ET

The MetLife building used to be listed at 2.4 million square feet. Now it is listed at 3 million square feet.Getty Images

One of the biggest complaints of office tenants is that building owners throughout the world use different systems for measuring how many square feet or square meters tenants are leasing, deviating as much as 24% from one another.

Now an international coalition of real-estate organizations formed last year is hoping to change that. The International Property Measurement Standards Coalition in June plans to announce a single measurement system for the global office market.

"The current situation on measuring standards is totally unacceptable," said Ken Creighton, chair of the coalition's board of trustees.

But whether or not building owners adopt or ignore the standards remains to be seen. The coalition doesn't have the clout to require owners to follow its standards and many landlords don't want to change their current systems, which can mean millions of dollars in extra rent.

For some building owners, adopting a new measurement standard would mean that their building would shrink in size and lose value. "There is a risk that some firms may be sitting on balance sheets that are actually worth significantly less when measured by a common standard," said Scott McMillan, chief of real estate at the International Monetary Fund.

For many, the debate might seem surprising. After all, landlords throughout the world are governed by the same laws of physics.

But they use widely different systems for measuring space and this affects rents, which typically are charged on a price-per-square-foot or price-per-square-meter basis.

For example, for a space that measures 10,000 square meters (108,000 square feet), some landlords will simply charge rent based on that amount. But most will increase the size by some factor depending on what formula they use for apportioning public space in the building—lobbies, bathrooms, hallways—to tenants.

Landlords also vary in whether they begin their measurement from inside or outside an exterior wall. Some begin measurements at their building's farthest extremity, like the nose of a gargoyle.

In some cities, including New York, landlords generally have increased loss factors over the years. For example, in 1979, architectural guides listed the Pan Am Building at 2.4 million square feet. Today the tower, which has been renamed the MetLife Building, is listed at 3 million square feet.

Tenants say consistent standards are greatly needed. "I would have preferred this to have happened five years ago, but better now than in five or 10 years' time," said Billy Davidson, group property director of Vodafone. VOD.LN +0.05% "This is the right thing to do."

The Standards Coalition was formed in 2013 by a group of international property organizations including the Royal Institution of Chartered Surveyors in the U.K., the Building Owners and Managers Association in the U.S. and the International Monetary Fund. The move was partly in response to increasing pressure from large global tenants that are frustrated by the numerous measurement systems.

A group of 18 experts representing 11 countries have been working on the standards. Proposed standards have been circulating for comment among real-estate professionals for months.

Coalition members expect the standards to be controversial. "In any initiative in standardization there will inevitably be winners and losers," said Marc Mogull, an executive with the investment firm Benson Elliot who also is a member of the Royal Institution of Chartered Surveyors.

There is also the question of implementation. Building owners will have to voluntarily accept the new standards and it isn't clear how many will do so, especially if it could mean a financial loss.

Many real-estate executives in New York are skeptical that new standards will change the minds of the city's landlords. "It's an important enough market that they can make their own rules," said Mark Weiss, vice chairman of Newmark Grubb Knight Frank.

But tenants could put pressure on building owners to accept standards by avoiding properties that don't. "I need the confidence from my suppliers to know when they give me comparable details that it's really comparable," said Vodafone's Mr. Davidson. "With [the new standards] I can say that I won't consider your building unless you show me the measurements based on these standards."

On the back of the creative tenants in Midtown South many companies outside the “creative” industries are beginning to choose more efficient space layouts. These layouts are more open-collaborative compared with the traditional private office-secretarial station set-up.

Tech tenants won’t be fooled again by misunderstandings with building owners about specific wiring requirements prior to signing leases.

WiredNYC, a project founded by Jared Kushner with the city’s Economic Development Corp., has taken wiring to a new level by certifying buildings through the new nationwide Wired Score.

The LEED-like system will be noted in the industry’s CoStar Group data base and provides grades from Connected to Platinum — a top score now held by 20 buildings including 32 Ave. of the Americas.

Philip Kanfer and Arie Barendrecht of Wired Score say this helps tenants and brokers ID the needed connections while owners can use it while marketing the sites.

With Midtown South’s popularity, older and less central buildings can actually cost more

By Adam Pincus

The way office-leasing tenants value the two most basic variables for space in Manhattan, location and the vintage of the building, is undergoing a sea change, creating unpredictable results in pricing, brokers say.

The change has been creeping in over several years, in part driven by rents in the core of Midtown South eclipsing rents in much of Midtown, and by the popularity of other pricey submarkets.

Two recent lease deals underscored the vagaries in the market, both in large, traditional office buildings, one along Third Avenue a block from Grand Central Terminal and another on Broadway two blocks south of Times Square, in the heart of the Garment District.

By any traditional method, the Grand Central space would typically command a higher rent, but instead it was in the mid-$50s, while a deal in the once-stodgy Garment District was in the $70s, he said.

Overall, the average asking rent for Manhattan was up last month to $62.91 per square foot, from $60.57 per foot in January. The availability rate, which measures space that is available now or will be available in the next 12 months, tightened by 0.1 point to 11 percent.

Midtown

Even as some buildings in the core of Midtown are seeing modest rents, the average asking rent for the market overall rose substantially last month.

That was driven in part by space with above-average asking rents that hit the market, including large blocks at the Durst Organization’s 4 Times Square. Condé Nast is slated to move to 1 World Trade Center later this year, and more than 800,000 square feet at the 1.8 million-square-foot tower was listed, brokers said. The asking rent starts at $83 per square foot.

A Durst spokesperson declined to comment on the listing.

Other new spaces included blocks at Solow Management’s Plaza District tower, 9 West 57th Street, with asking rents as high as $200 per foot.

That was far higher than the average asking rent in Midtown last month, which rose by $3.04 per foot in February over the prior month, to $73.25 per square foot, while the availability rate declined by 0.2 points to 11.5 percent.

However even as the asking rents ticked up, some brokers said rents are being supported by longer free-rent periods and more money given to tenants to build out their space, known as work letters. Landlords want a higher rent on paper to hit numbers required by their lenders, they said.

Midtown South

While Downtown is providing steep competition to Midtown South on a price-per-square-foot basis, landlords are facing an ever-increasing competition from Brooklyn’s Dumbo neighborhood.

Prospective tenants hungry for the Midtown South creative vibe, but priced out of the area, are searching Downtown for cheaper alternatives. But some find Lower Manhattan lacking in the sought-after spirit, and instead are turning to Dumbo.

Generally in Dumbo, the average asking rent for space he is considering is about $45 per square foot. That is significantly below the average asking rent in Midtown South, which was $55.79 per square foot last month, up $1.08 per foot from January. The market continued to tighten, with the availability rate falling by 0.2 points last month to 8.4 percent.

Downtown

While some tech firms are heading across the river, others continue the march to Lower Manhattan.

Meanwhile, vacancies tumble

By Julie Strickland

Manhattan office availability

Office leasing in Midtown rebounded in February, as employment growth, which surpassed the 2007 pre-recession peak, drove demand and pushed up asking rents.

Overall, Manhattan office rents hit an average asking rent of $67.04 per square foot last month – a 9.3 percent year-over-year increase, according to a February Manhattan Office Market Report. Meanwhile, vacancy rates fell slightly, to 10.7 percent from 11.8 percent.

Midtown South experienced the biggest year-over-year uptick in asking rents, with a 7.4 percent jump last month to $72.23. The neighborhood’s vacancy rate dropped to 7.7 percent year-over-year and held nearly steady from January, thanks largely to a 55,984-square-foot space at 275 Seventh Avenue hitting the market.

Midtown, which saw a drop in January, rebounded last month as tenants turned away from the competition for space in Midtown South. Vacancies in Midtown dropped to 11 percent, down from 12 percent last February. Midtown asking rents, meanwhile, crept up 4 percent year-over-year, with Class A office space going for an average of $81.63 per square foot.